Material Costs in 1Q21 Up Significantly, Forecast for Continued Increases
As economies recover from the pandemic, demand has pushed costs up for gold, copper, brass, steel, thermoplastics, and other materials used in the manufacturing of connectors.
Bishop & Associates tracks raw material costs for gold, copper, brass, steel, thermoplastics, and other materials used in the manufacturing of connectors. These materials represent 75% of the material costs in a typical connector. Prices for these materials increased 31.2% YOY in 1Q21 and increased 34.0% YOY when weighed by usage in connectors. Copper, steel, and thermoplastic price increases were the largest contributors to the increase in connector prices.
Material Costs Analysis
The following chart shows the YOY change in material cost over the last five years/quarters.
The following table shows the YOY change for each material. Gold had the smallest YOY increase. Copper/brass had the greatest YOY increase at 40.9% and a weighted increase of 19.1%. Thermoplastics were up 31.7% YOY, which equaled a weighted increase of 10.6%. The overall weighted increase was 34.0% for all materials in the first quarter.
There was a significant sequential cost increase in the first quarter (QoQ) of 2021. Plastics were up 21.3%, copper was up 14.2%, and steel was up 27.2%. Gold actually dropped 5.6% QoQ. These increases were the result of increased demand. Gold was down as its hedge value decreased. The weighted total cost increase for connectors on a sequential basis was 14.8%.
It is important to understand that the change in raw material cost will differ based on individual usage of these materials; however, the general trend is upward as the markets and economies recover from the pandemic.
- The first half of 2020 saw mainly material cost decreases due to declining demand (except for gold). As demand picked up in the second half, material costs began increasing. This yielded the large YOY increases experienced in 1Q21.
- We believe that the material cost trends from the first quarter of 2021 will continue in the second quarter and, potentially, for the second half of the year.
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